Canadian-based retailer Hudson's Bay (HBAYF)  is selling the Lord & Taylor U.S. department store division to clothing rental subscription service Le Tote.

Shares of Toronto-listed HBC, which is currently involved in a takeover battle, rose by as much as 2% on the news on Wednesday. HBC was last trading up 12 cents (Canadian) to $10.28 on the Toronto Stock Exchange.

HBC, which describes itself as North America's oldest retailer, said it will receive $75 million (U.S.) in cash at closing of the deal and a secured promissory note for $25 million payable in cash after two years. HBC will also receive an equity stake in Le Tote, two seats on the company's board and certain rights as a minority shareholder. 

Le Tote will acquire the Lord + Taylor brand and related intellectual property while assuming operations of 38 stores, Lord + Taylor's digital channels and the associated inventory, the company said in a statement on Wednesday.

"We're excited to have reached an agreement with Le Tote that creates a new model for Lord + Taylor, bringing together fashion rental subscriptions with traditional retail," stated HBC CEO Helena Foulkes.

The sale comes after "an extensive review of strategic alternatives," Foulkes added, saying Le Tote's "innovative approach is the best path forward for Lord + Taylor."

Foulkes said the transaction enables the company to focus on "our greatest opportunities, Saks Fifth Avenue and Hudson's Bay."

The Lord + Taylor acquisition comes as a group of HBC's majority shareholders, led by executive chairman Richard Baker, are proposing to take the company private for $9.45 (Canadian) per share. The bid is being called inadequate by HBC's special committee reviewing the offer as well some shareholders such as Land and Buildings Investment Management LLC and Catalyst Capital Group Inc.

HBC and HBS Global Properties, HBC's real estate joint venture, will retain ownership of all real estate assets related to Lord + Taylor, the company said.

"For at least the initial three years, HBC has agreed to maintain economic responsibility for the rent payments owed by Lord + Taylor at the locations operated by Le Tote," the release states.

Starting in 2021, HBC and Le Tote will have options to reassess the Lord + Taylor store network, the company said. "This may include HBC recapturing select locations to determine their highest and best use, including possible redevelopment into mixed-use properties with a variety of services, experiences and retail offerings."

HBC shares have jumped 65% from their 52-week low of $6.22 (Canadian) in early June, just before the shareholder group announced its going-private bid.